Correlation Between Cloudflare and NetScout Systems

Can any of the company-specific risk be diversified away by investing in both Cloudflare and NetScout Systems at the same time? Although using a correlation coefficient on its own may not help to predict future stock returns, this module helps to understand the diversifiable risk of combining Cloudflare and NetScout Systems into the same portfolio, which is an essential part of the fundamental portfolio management process.

By analyzing existing cross correlation between Cloudflare and NetScout Systems, you can compare the effects of market volatilities on Cloudflare and NetScout Systems and check how they will diversify away market risk if combined in the same portfolio for a given time horizon. You can also utilize pair trading strategies of matching a long position in Cloudflare with a short position of NetScout Systems. Check out your portfolio center. Please also check ongoing floating volatility patterns of Cloudflare and NetScout Systems.

Diversification Opportunities for Cloudflare and NetScout Systems

0.64

Correlation Coefficient

Cloudflare  NetScout Systems

Poor diversification

The 3 months correlation between Cloudflare and NetScout is 0.64. Overlapping area represents the amount of risk that can be diversified away by holding Cloudflare and NetScout Systems in the same portfolio, assuming nothing else is changed. The correlation between historical prices or returns on NetScout Systems and Cloudflare is a relative statistical measure of the degree to which these equity instruments tend to move together. The correlation coefficient measures the extent to which returns on Cloudflare are associated (or correlated) with NetScout Systems. Values of the correlation coefficient range from -1 to +1, where. The correlation of zero (0) is possible when the price movement of NetScout Systems has no effect on the direction of Cloudflare i.e., Cloudflare and NetScout Systems go up and down completely randomly.

Pair Corralation between Cloudflare and NetScout Systems

Considering the 90-day investment horizon Cloudflare is expected to generate 1.53 times more return on investment than NetScout Systems. However, Cloudflare is 1.53 times more volatile than NetScout Systems. It trades about 0.14 of its potential returns per unit of risk. NetScout Systems is currently generating about 0.01 per unit of risk. If you would invest  10,373  in Cloudflare on September 26, 2024 and sell it today you would earn a total of  785.00  from holding Cloudflare or generate 7.57% return on investment over 90 days.

Time Period	3 Months [change]
Direction	Moves Together
Strength	Significant
Accuracy	100.0%
Values	Daily Returns

Cloudflare  vs.  NetScout Systems

Cloudflare

Risk-Adjusted Performance

14 of 100

Good

Compared to the overall equity markets, risk-adjusted returns on investments in Cloudflare are ranked lower than 14 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively abnormal technical and fundamental indicators, Cloudflare unveiled solid returns over the last few months and may actually be approaching a breakup point.

NetScout Systems

Risk-Adjusted Performance

3 of 100

Insignificant

Compared to the overall equity markets, risk-adjusted returns on investments in NetScout Systems are ranked lower than 3 (%) of all global equities and portfolios over the last 90 days. In spite of comparatively stable fundamental indicators, NetScout Systems is not utilizing all of its potentials. The recent stock price uproar, may contribute to short-horizon losses for the private investors.

Pair Trading with Cloudflare and NetScout Systems

The main advantage of trading using opposite Cloudflare and NetScout Systems positions is that it hedges away some unsystematic risk. Because of two separate transactions, even if Cloudflare position performs unexpectedly, NetScout Systems can make up some of the losses. Pair trading also minimizes risk from directional movements in the market. For example, if an entire industry or sector drops because of unexpected headlines, the short position in NetScout Systems will offset losses from the drop in NetScout Systems' long position.

The idea behind Cloudflare and NetScout Systems pairs trading is to make the combined position market-neutral, meaning the overall market's direction will not affect its win or loss (or potential downside or upside). This can be achieved by designing a pairs trade with two highly correlated stocks or equities that operate in a similar space or sector, making it possible to obtain profits through simple and relatively low-risk investment.

Check out your portfolio center.

Note that this page's information should be used as a complementary analysis to find the right mix of equity instruments to add to your existing portfolios or create a brand new portfolio. You can also try the Global Correlations module to find global opportunities by holding instruments from different markets.